Birla Corp, UltraTech Among Dolat Capital's Top Stock Picks In Cement Pack After Q3 Results — Here's Why

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Dolat Capital Report

The cement sector in our coverage universe (13 stocks) reported marginal revenue increase of 0.2% YoY (+12.6% QoQ) at Rs 468.3 billion in Q3 FY25 led by +8.4% YoY (+10.6% QoQ) in volume to 87.4 mt, which was offset by -7.6% YoY (+1.8% QoQ) in blended realization/tn to Rs 5,358. Ebitda reported - 18.1% YoY/+43.1% QoQ to Rs 77.1 billion, however, blended Ebitda/tn grew by 29.3% QoQ (-24.4% YoY) to Rs 882, primarily led by -2.3% QoQ (-3.3% YoY) in opex/tn coupled with +1.8% QoQ (-7.6% YoY) in blended realization/tonne.

Accordingly, adjusted profit after tax decreased by 59.7% YoY to Rs 17.5 billion (+19.1% QoQ).

Top Picks

UltraTech Cement

UltraTech Cement’s capacity is expected to increase from 171.71 mtpa currently, to 188 mtpa/200 mtpa/215 mtpa by FY25E/FY26E/FY27E (incl. 10.75 mtpa Kesoram) which will support future growth. It will continue to witness healthy operating cash flow (average Rs 148.7 billion/year over FY24-FY27E) and free cash flow (average Rs 27.0 bn/year over FY24-FY27E) thereby leading to deleveraging (Net D:E of 0.19x/0.12x/0.01x in FY25E/FY26E/FY27E).

We expect improvement in Ebitda/tn from Rs 1,089/Rs 881 in FY24/9MFY25 to Rs996/Rs1,204/Rs1,288 in FY25E/ FY26E/FY27E. We expect a revenue/Ebitda/adjusted profit after tax CAGR of 12.1%/19.6%/22.4% over FY24-27E led by 9.9%/20.5%/9.3% volume growth and -4.7%/ 1.5%/0.7% realization growth in FY25E/FY26E/FY27E.

UltraTech, being the largest player in the Indian cement industry, is its biggest advantage. Accordingly, we recommend ‘Accumulate’ rating with target price of 11,947 on 15.5x consolidated FY27E EV/Ebitda + 50% of FY27E CWIP + Star Cement stake at 1x P/BV.

Birla Corporation

We believe Birla Corp is well placed in the industry given-

1. focus on the trade segment (68%),

2. increasing share of premium products (59% in trade),

3. higher share (79%) of high-margin blended cement and

4. sizable presence in relatively better regions of Central, North and West.

Improvement in profitability to continue (lower versus earlier estimates), as Mukutban utilization improves (>60% in Q3 FY25). To support growth, Birla Corp is advancing its expansion plans of 1.4 mtpa cement capacity at Kundanganj, UP by Q1 FY26E.

Additionally, the company has plans to increase its capacity from 20 mtpa to 25 mtpa (details of 3.6 mtpa awaited) by FY27E.

We expect Revenue/ Ebitda/APAT CAGR of 2.3%/3.7%/10.5% over FY24-27E led by 1.6%/5.8%/6.0% volume growth and -7.7%/ 2.5%/0.0% cement realization growth in FY25E/FY26E/ FY27E.

Accordingly, we recommend ‘Accumulate’ rating with target price of Rs 1,347 based on 8x consolidated FY27E EV/Ebitda and 50% Capital WIP of FY27E (Our target price factors EV of $61/tonne).

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